Correlation Between National Storm and West Fraser

Can any of the company-specific risk be diversified away by investing in both National Storm and West Fraser at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining National Storm and West Fraser into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between National Storm Recovery and West Fraser Timber, you can compare the effects of market volatilities on National Storm and West Fraser and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in National Storm with a short position of West Fraser. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Storm and West Fraser.

Diversification Opportunities for National Storm and West Fraser

0.28

Correlation Coefficient

National Storm  West Fraser

Modest diversification

The 3 months correlation between National and West is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding National Storm Recovery and West Fraser Timber in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on West Fraser Timber and National Storm is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on National Storm Recovery are associated (or correlated) with West Fraser. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of West Fraser Timber has no effect on the direction of National Storm i.e., National Storm and West Fraser go up and down completely randomly.

Pair Corralation between National Storm and West Fraser

Given the investment horizon of 90 days National Storm Recovery is expected to under-perform the West Fraser. In addition to that, National Storm is 9.04 times more volatile than West Fraser Timber. It trades about -0.09 of its total potential returns per unit of risk. West Fraser Timber is currently generating about -0.1 per unit of volatility. If you would invest  8,491  in West Fraser Timber on December 20, 2024 and sell it today you would lose (796.00) from holding West Fraser Timber or give up 9.37% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

National Storm Recovery  vs.  West Fraser Timber

National Storm Recovery

Risk-Adjusted Performance

Very Weak

Over the last 90 days National Storm Recovery has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

West Fraser Timber

Risk-Adjusted Performance

Very Weak

Over the last 90 days West Fraser Timber has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with National Storm and West Fraser

The main advantage of trading using opposite National Storm and West Fraser positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Storm position performs unexpectedly, West Fraser can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in West Fraser will offset losses from the drop in West Fraser's long position.

The idea behind National Storm Recovery and West Fraser Timber pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.